Breaking it Down: Investing With A Self-Directed IRA LLC
If you don’t have a Self-Directed IRA LLC, you’ve probably at least heard about them. Especially if you’re a regular reader.Once you start looking for ways to invest your retirement funds outside of Wall Street, you’ll realize there is no better way to do it than with a Self-Directed IRA LLC.
The cost to establish a Self-Directed IRA LLC varies on where you go, but it usually will cost between a few hundred to about a thousand. Once you establish a Self-Directed IRA LLC, a bank will serve as your custodian, which means you pay less fees and gain the ability to quickly invest your retirement money in anything except collectibles and life insurance.
For 2018, the following are some examples of types of investments that can be made with your Self-Directed IRA LLC:
- Lending (both hard and soft).
- Hedge Funds
- Mortgage pools.
- Private Equity Funds
- Foreclosure property.
- Private loans.
- Real estate.
- Tax liens.
- Private businesses.
- Limited liability companies & partnerships.
- Private placements.
- Precious metals & coins.
- Mutual funds, stocks & bonds.
- Foreign currency.
- Cryptocurrency (bitcoins, etc.)
As you can see above, using a Self-Directed IRA LLC to make investments allows you to make traditional as well as non-traditional investments, such as real estate or cryptocurrency, in a tax efficient manner.
If you’ll direct your attention below, you can read about the most popular reasons to purchase non-traditional assets with your Self-Directed IRA LLC.
The Ability To Invest In What You Understand
One of the oldest pieces of advice in the world of investing is “invest in what you know”. The chances are you’ve probably never met the person managing that mutual fund, or the CEO of that company doing an IPO next week.
Compare them to Real estate. You grew up around real estate. Remember when you bought your first home? Real estate is the one form of investing the average American knows about more than any other.
Real estate is just like any other form of investing, it’s not without risk, but many retirement investors feel more comfortable buying and selling real estate than they do stocks.
This is a no-brainer. You’re always going to hear people talking about the importance of diversity. But the truth is there isn’t much diversity on Wall Street. When you get a Self-Directed IRA LLC you won’t just be thinking outside the box, you’ll also be investing outside of it too!
Cryptocurrency is one of the fastest growing investments. As of if this writing, the value of Bitcoin continues to sky rocket. For years it has been speculated that the price would crash, but so far it hasn’t. With a Self-Directed IRA LLC, you can jump on the band wagon and cash in on the profits.
Loans & Notes
If you used a Self-Directed IRA LLC to loan money to a friend, all interest received would flow back into your IRA tax free. Whereas, if you lent your friend money from personal funds (non-retirement funds), you would pay taxes on the interest received.
Inflation can have a drastic impact on your retirement portfolio because it means a dollar today may not be worth a dollar tomorrow. Inflation increases the cost of things, so not only is your money worth less, everything also cost more.
Investing in real estate can provide natural protection against inflation, as rents tend to increase when prices do, acting as a hedge against inflation. People will always need homes to live in.
Just remember, being protected against inflation can mean the difference between retiring and working the rest of your life.
Hard assets are things we can see and touch, like real estate and gold. They’re considered non-traditional investments as well. Do you know what it feels like to drive by a building or property you own with your family, point to it, and say “We own that?” Once you invest in hard assets, you will!
Tax deferral literally means that you are putting off paying tax. Tax deferral means that all income, gains, and earnings, such as interest, dividends, rental income, royalties or capital gains, will grow tax free until you withdrawal (or distribute) the funds.
This means you can grow the money in your retirement account at a much faster pace and retire many years earlier. And, when you withdraw your IRA funds in the form of a distribution after you retire, you will likely be in a lower tax bracket and be able to keep more of what you saved.
Real Estate & Raw Land
Okay so I know I already mentioned real estate, but there’s more you should know about using a Self-Directed IRA LLC. And I figured you’d want to know!
Real estate is the most popular investment made with a Self-Directed IRA. Let’s look at an example to see why.
Let’s say you purchased a piece of property with your Self-Directed IRA for $200,000 and later sold the property for $150,000, the $50,000 gain would be tax-free. Whereas, if you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income taxes and, depending what state the property is in, state taxes.
With a Self-Directed IRA LLC you are permitted to purchase an interest in a privately held business, unless it’s held by an S corporation.
Note: Remember to avoid the triggering a prohibited transaction!
Stocks, Bonds & Mutual Funds
By now you know that you can invest in just about anything. The advantage of using a Self-Directed IRA LLC is that you are not limited to investing only in traditional Wall Street investments.
If you are interested in learning more about investing with a Self-Directed IRA LLC, call Royal Legal Solutions now at (512) 757–3994 to schedule your consultation.